Business Inventories in U.S. Grew at a Slower Pace in August

Inventories in the U.S. rose at a slower pace in August, indicating that unexpected strength in sales may be starting to drain stockpiles.

The 0.6 percent increase in goods on hand followed a 0.8 percent gain in July, Commerce Department data showed today in Washington. Sales at factories, wholesalers and retailers climbed 0.5 percent after advancing 0.9 percent the prior month.

The biggest back-to-back gains in retail sales in almost two years may be making it difficult to keep shelves and warehouses stocked as companies reined in spending ahead of looming year-end tax and government spending changes in the U.S. The need to replenish depleted inventories may help give manufacturing a boost in the last three months of the year.

“Businesses are operating in a fairly lean environment right now,” Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York, said before the report. “Definitely there’s hesitancy about these other economic issues that I think is weighing on inventory accumulation.”

The gain in inventories compared with a 0.5 percent gain median forecast of 47 economists surveyed by Bloomberg. Estimates ranged from gains of 0.2 percent to 0.7 percent.

At the current sales pace, businesses had enough goods on hand to last 1.28 months, the same as in July.

A separate Commerce Department report today showed retail sales rose more than projected in September, reflecting broad- based gains that indicate household spending helped bolster economic growth last quarter.

Sales Jump

The 1.1 percent advance in purchases followed a revised 1.2 percent increase in August that was larger than previously estimated. The two-month gain was the biggest since late 2010. The median forecast of 77 economists surveyed by Bloomberg called for a 0.8 percent rise.

Consumer spending “remains quite robust,” Randy Potts, chief executive officer of Forest City, Iowa-based Winnebago Industries Inc. (WGO), the biggest U.S. maker of motor homes, said on an Oct. 11 earnings teleconference. “We are very encouraged by the positive signs we see in the general economy.”

Manufacturing in the New York region contracted in October for a third straight month, indicating the pick up in spending has yet to filter through to factories this part of the country, another report today showed. The Federal Reserve Bank of New York’s general economic gauge, known as the Empire State index, rose to minus 6.2 from minus 10.4 in September, which was the lowest since April 2009.

Retailers’ inventories, the only part of today’s stockpile report not previously released, climbed 0.6 percent as sales jumped 1.3 percent.

Payroll Gains

Employment figures released earlier this month by the Labor Department showed the economy added 114,000 workers last month after a revised 142,000 gain in August that was more than initially estimated. The jobless rate unexpectedly dropped to 7.8 percent from 8.1 percent and hourly earnings climbed more than forecast.

The Federal Reserve signaled it’s moving toward linking its outlook for near-zero interest rates to specific economic conditions such as a decline in the unemployment rate, rather than tying low rates to the calendar, according to minutes of the Federal Open Market Committee’s Sept. 12-13 meeting released Oct. 3.

Wholesale inventories, which account for about 30 percent of all business stockpiles, climbed 0.5 percent in August as sales advanced, Commerce Department data showed. Factory inventories, which comprise about 38 percent of the total, rose 0.6 percent in August.

To contact the reporters on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net; Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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